Suppose people anticipate that inflation will be 4 percent during the next several years.If the real rate of interest is 5 percent,the money rate of interest must be
A)1 percent.
B)4 percent.
C)5 percent.
D)9 percent.

Question

Quizplus · Accepted Answer

The money rate of interest is calculated as the sum of the real rate of interest and the expected inflation rate, so the money rate of interest would be 9% (5% + 4%). Therefore, option D is correct.

Suppose People Anticipate That Inflation Will Be 4 Percent During